This episode features an interview with Brent Beshore, the founder of Permanent Equity, a private equity firm that acquires and operates family-owned businesses. Beshore shares his journey from accidental business owner to building a successful investment firm, discussing his philosophy on long-term value creation, the challenges of the current economic climate, and his unique approach to acquiring and scaling companies.
Topics: Private Equity, Business Acquisition, Entrepreneurship, Long-term Investing, Economic Outlook, Small Business Management
Introduction [00:07]
Shaan Puri: What’s up everybody? Shaan here with Sam and special guest for this episode, uh, Brent. Brent, how do you say your last name?
Brent Beshore: Beshore.
Shaan Puri: Beshore. All right, cool. Um, I’ve been trying to get you on for months. I think our email thread goes back months. Um, the reason why is because I’m interested in the business of buying businesses. I I’ve been looking to do this myself, so after I sold my company, I said, “Great, I got some cash. I can either put this in the stock market, I can do, um, you know, I can go gamble this on a riverboat, or I can uh potentially buy a cash-flowing business that’s uh a good, solid, stable business.” And so I started learning about that world, stumbled around and saw Permanent Equity, and um, yeah, I’ve been interested in having you on on the podcast since then. So, why don’t you tell us, give us like, you know, the the minute version of who are you and then also what is Permanent Equity?
Brent Beshore: Yeah, so um, Permanent Equity is, we like to describe ourselves as a family of companies that buys family-owned companies. So technically we’re a private equity firm now. Um, we were um, just a a small collection, it was my own capital in the beginning. I was an entrepreneur and uh, and then accidentally bought a business about 10 years ago, and that’s what led into kind of what we do today. Um, but uh, we raised a You accidentally bought a business?
Brent Beshore: Yeah, so uh, I had a mutual acquaintance say, “Hey, you should meet this guy. He’s in your he’s in your industry,” and uh he just got left at the altar for the second time. And I took that to mean I should try to buy his business because why else would you tell me that? He had no idea. He was just trying to connect two people that were, you know, in the same uh in the same field or similar fields. And so, uh I don’t know, I look about what 24, 25 now. I looked about 13 or 14 then and uh sat across from the sky and told him I wanted to buy his business and uh he he uh he laughed at me and said, “Two two grown men are trying to buy buy my business? Uh, how in the heck do you think you’re going to do it?” I said, “I don’t know, I’ll figure it out.” And we negotiated and uh he uh told me no thank you and uh then seven months later called me back up and said, uh, “All right, let’s move forward and get it done.” So.
What is Regional Marketing? [02:04]
Shaan Puri: What was your company before?
Brent Beshore: So, I uh uh started a a kind of collection of regional marketing companies. Uh, we started in 2007, kind of really got going in 2008 and 9, uh which were, as you all know, interesting times. Uh, but uh it actually allowed us to grow and uh we adopted some video technology that was becoming standard. We think we were probably the first people in the uh uh in the uh world to use it for commercial purposes, but uh What does this mean? What’s regional marketing?
Brent Beshore: You know, we were doing, look, we were doing like ad agency type work. We were doing media buying, we were doing um um digital work, um, you know, uh trying to scrap and claw and and sort of make it go of it. Um, you know, So you’re just an you’re an agency, just figuring it out.
Brent Beshore: Yeah, we were an agency. We had some unusual talents kind of under that agency because being in mid-Missouri, we didn’t have access to a lot of specialty groups. So we started building out our own specialty groups. So we built out research, um we did some uh mobile and app development as well, um and uh and then some film work. So those were kind of the three unusual buckets that you typically don’t get into an agency.
Permanent Equity’s Success [03:05]
Shaan Puri: And how big did it get? Yeah, give us a sense of the like level of success. I think a lot of people one of the things we hear a lot is from the audience is like, they hate when we fast forward and someone’s like, “Yeah, I did this thing,” and then all of a sudden these amazing opportunities opened up and they sort of were like, “Wait, where were they before?” And so give us the before picture. How were you doing? How was that business doing financially? Did it was it a big business, small business? You know, what was that business like?
Brent Beshore: Yeah, so we, um, so let’s see here. So, um, I’m trying to it’s been it’s been a while since I’ve thought about the numbers. Um, so we grew to 26 employees, I think at the peak of that, kind of before we were um, so we were like we were doing fine. I could make a living doing it, uh make a good living doing it. It wasn’t um, you know, the agency business is hard. It’s really, really hard. And I think that’s uh um probably what I’ve learned in my career is I’ve made all the mistakes and I’ve tried and tested a lot of business models and sort of taste and try something and you’re like, “Oh, didn’t realize how hard that was going to be,” and you sort of, you know, moved around. Um, and so, you know, I would say, you know, moderately successful regional marketing firm. Um, nothing special. I mean, I would say, um, you know, when um um, yeah, when we bought the the firm that we did called Media Cross, um, you know, we were kind of co-equals is how I describe it, kind of in the marketplace. Um, they were much more focused on uh government contracts than we were. We didn’t have any government contracts, so that was really attractive about the acquisition. And um, being able to combine those uh organizations uh gave us a lot more um cash flow than than having them separate just be based on cross-selling different products that we had and being able to fulfill a lot more of the um uh a lot more of the uh gross profit through sort of the larger organization that they’d been farming out some stuff. So that was uh that was kind of a nice combination.
Acquisition Strategy [04:47]
Shaan Puri: Wait, so did you buy that first company under the umbrella of your of your marketing business?
Brent Beshore: Yeah. Yeah, correct.
Shaan Puri: Got it. And so so it wasn’t its own entity?
Brent Beshore: No, well, I mean, it was I mean, if you want to speak technically, it was its own density, but it was 100% owned by me and 100% the other firm was owned by me. So, I mean, it’s shared resources. Got it, got it. So you didn’t have a co-founder or any outside investors or anything?
Brent Beshore: Yeah, so I bought it with an SBA loan. Um, thank God for the SBA. Um, and so um, no, it was it was just a it was an SBA loan and uh rolled the dice.
Investment Philosophy [05:19]
Shaan Puri: And so just to give people a sense of where you’re at now, uh I think Permanent Equity, you guys raised a a second fund, uh 248 million. It’s a a 27-year fund, which I think is interesting and you can talk about that. Uh and you have a 10-year investment period. And so um so the first fund, 50 million, second fund, 250 million roughly. Um, so what are you guys up to? Explain what the model is here and why that should be interesting for people.
Brent Beshore: Yeah, well so, um, if you think kind of from first principles, um, families got wealthy by uh getting involved in a business and holding it for a very long time and then over time using those cash flows to uh either fund new investments or opportunities. Um, and so we just have very much the same lower mindset. Um, you know, private equity is kind of the main methodology of how people have bought and sold companies in the past and it’s a very short time clock if you think about it that way. Um, you’re really um uh from the time you buy to the time you sell, it really needs to be probably no more than four years or five years at most and that’s if you catch it kind of early on in the life cycle. Um, most private equity funds are seven years with three one-year extensions, so up to 10 years maximum. Um, I mean, technically if you can’t sell the asset, you can go longer than that and then everyone gets irritated at you, but you’re expected to sort of uh have the capital returned. And so what that uh forces is is, you know, you just can’t think longer than your time horizon for holding the business. And so, um, when you combine that with a uh you know, most private equity firms are trying to put in as little equity as they possibly can and maximize the debt. And so what you end up doing is you take these great family businesses that have been around for a long time, um uh you’re sort of hitting them with the needle and trying to supercharge them to grow them and get a higher multiple when you sell and you’re making just very short-term decisions by necessity. Um, and you’re opening yourself up, which is pertinent now, it wasn’t as pertinent three or four weeks ago, but now you’re opening yourself up to a lot of downside risk um that you just can’t withstand nearly as much shock as uh as you could if you didn’t have any debt. So, um, we’ve just really taken the opposite approach and said, we want to own businesses like a family would. Um, so we buy with no intention of selling the business and we’re typically using no debt as part of our transactions, um, which in the private equity world means that we’re the weirdest uh duck in the world.
Revenue and Company Performance [07:30]
Shaan Puri: So how much uh what’s your total what’s the total revenue of the collection of companies then?
Brent Beshore: Let’s see, so uh total revenue, gosh, I haven’t even uh 100 and Oh gosh, 100 and 80, 180 million, something like that.
Shaan Puri: And then I imagine you guys try to run this like super profitably. So then if you have 180 million in revenue, I bet you have uh 40 million in cash flow.
Brent Beshore: Uh, let’s see here. So hold on, I I you literally are putting me on the spot here. I have not done our calculations recently. Um, yeah, I mean we’re we’re we’re highly profitable. I mean the organization does real well. Um, I don’t know if we’re at 40 million uh because we have some lower margin businesses. Um, we’re lower than that, but but yeah, we do real well. Um, and and look, I I I don’t own all that anymore, right? So, um, just from a like I don’t want this to to come across differently than it is. We’ve got investors. Um, the first fund owns uh five of those investments and then I own uh four outside the first fund um uh that were the the the group that we put together before we raised that first fund. And then the second fund, we haven’t deployed any of that capital. Um, and um, yeah, so we’ve got a bunch of dry powder. I mean, obviously it’s uh been extremely fortuitous for us to raise the time that we raised and um, I’ve been having lots of conversations with our investors and uh um there should be should be lots of opportunity, lots of pain out there which is unfortunate and we got to try to toe that line. We can talk about it between being a white knight and uh loan shark and uh that’s not an easy one to toe.
What types of companies are you looking to buy? [09:00]
Shaan Puri: Right. And so uh so let’s just if we just take a look at the the portfolio as is, uh what types of companies are you trying to buy? So you’re trying to buy um is it a certain price point? Is it a certain um business model? Is it a certain type of owner? What are you trying to buy?
Brent Beshore: Yeah, so uh we first want to buy something that we think is going to be durable and around for a really long time. Um, so, you know, if you look at our current portfolio, we are uh in the swimming pool business, um like digging holes in the ground, shooting them with concrete. Um, we’re also in manufacturing in that space as well. Um, another company that’s unrelated in the backyard product space, um, so bunch of different SKUs that sell through mass retail. Um, we are uh we have a military recruitment firm. That was the first firm that I acquired, Media Cross. Um, we’ve got a a military recruitment firm. So what is that like lead gen for military?
Brent Beshore: Yeah, so we actually uh so we work, I mean, we have a number of different clients, but one of our main clients is uh a civilian branch of the Navy that resupplies the ships that never come into port. So it’s called Military Sealift Command and we’re responsible for uh finding and onboarding uh all of their uh staff on a yearly basis. So it’s like a staffing firm for a ship.
Brent Beshore: Yeah, well for a whole branch of the military. So it’s uh um there’s they’re they’re staffing. I mean, there’s a lot of uh you know, 14, 15, 1700 uh civilian mariners a year into that division. Um, so it’s a it’s a pretty large operation. But Is it digital?
Brent Beshore: Uh, some of it’s digital. Yeah, yeah, we have uh you know, online uh application products. Uh But not mostly.
Brent Beshore: Uh, I mean, there’s a lot of physical activities as well. We have physical recruiters and uh it’s you know, online, offline. It’s the it’s the not sexy uh where the rubber meets the road real deal business.
Leadership Team and Growth [10:43]
Shaan Puri: So we were talking about some of the different businesses you guys owned. Uh so Media Cross, which is a military recruitment firm, swimming pool business, backyard space. So you have a couple of there. So you were saying you’re looking for durable businesses, that’s like let’s say attribute one. Uh what are the other sort of key attributes you’re looking at?
Brent Beshore: Yeah, I mean, so um we want to find a leadership team that we can partner with. Um, there’s so many um, you know, it’s so hard to grow a business, right? And so a lot of the businesses we’re looking at, we we we either call it has been right before the line of professionalization or maybe it’s just crossed it. And there’s this this real interesting, you know, sort of in-between gap where a lot of these firms um they’re they’re too big to be small and too small to be big and the leadership team’s kind of capped out. They’re just brute forcing uh as much as they possibly can, but they don’t have the the systems, the talent on staff to be able to to grow larger. And so a lot of the times we’re we’re trying to figure out from them, you know, do they want to get bigger? There’s some there’s some firms that we talk to and and they say, “Well, even they’ll say, yeah, I want to get bigger,” but the, you know, the CEO is answering 60 calls a day on his cell phone and I mean, there’s just no way, right? Um, and so we’re looking for a leadership team that I think has the base skills, is really, really excellent at what they do, and we’re looking for the the the company to have a position in the marketplace that is um protected somehow, right? So I mean, we’re not looking to get into just commodity type businesses. We want them to have something unusual about them that um we can really build on and help them grow. Um, and then, you know, this is going to sound like a like a maybe a a no-brainer obvious one, but uh we got to get to a price and terms that that that that are acceptable to both parties. Right. And um there’s roughly 400 decisions that have to be made sort of during the acquisition process. I mean, that’s 400 opportunities to uh not agree and and it’s very difficult and time-consuming and so um a lot of it’s just trying to make sure that um we think that a deal could be done uh as well.
Selling the Business [12:33]
Shaan Puri: And so when you say the leadership team can, you know, what you want them, you want them to scale. So why are they selling? If um if you want them to stay in place, they’re not looking to kind of like go do something else or retire or whatever. You you want them to continue to operate. Yeah. And are they just looking for liquidity? Uh what is the kind of core motivation to sell and then do you have a problem where once they’ve sold or do you structure the deal so that they’re still incentivized to to to stay on and do a good job?
Brent Beshore: Yeah, it’s a good question. So, um part of it is so the leadership team and the the ownership is is not always the same thing. Um, so some of the the organizations that we get involved in, um the owner is is very much part-time um and hasn’t been directly involved in the business for a long time. And so uh for us, it’s actually that’s a that’s a decently good situation because we love to just, you know, continuity of it, keep the leadership team, treat them well, um and and try to augment the talents kind of as we go along. Um, some of the owners that that that that we’ve got involved in uh have stayed on and and it’s worked out great. The second body of the apple they get down the road be much larger than than um even their first payment despite them selling a uh majority of the company. Um, so uh it really is a situation is you know, specific. I mean, I would say, um, yeah, for the most part, um, some are wanting to take chips off the table, some, you know, realize that they need help in scaling and growing. Um, so it’s you know, it’s a variety of different reasons. I would say that um all of them have an exit somehow in their minds. I mean, if you’re in your call it 30s or 40s and you want to work for the next, you know, 30, 40 years, um, you know, I don’t I don’t think many people like that are are selling their business, um, at least in the size range and the style of businesses that we buy.
Wealth Creation [14:10]
Shaan Puri: Hey, earlier you said that one of the best ways that families have created wealth was by having a business and owning it for a very long time. So something tells me that you study like the wealth creation process. I’m not talking about like just building a business that makes money, but like like creating like a true wealth. And so I guess what I’m wondering is with these people who are building these companies, like I’m looking at I’m I’m looking at like things that maybe won’t ever be like massive massive, but can create great wealth. So I’m looking at gain group. I’m looking at selective search, which is executive search meets personal matchmaking. That actually probably could be big. Anyway, um when you’re doing this, like what what are some of the paths? I mean like because in Silicon Valley where Sean and I live, the path for most people or the so Silicon Valley stuff, which is sometimes bullshit, sometimes not, is creating something and raising loads of money and owning a very small percentage and not truly getting wealthy until after you sell it. Or not getting liquidity at least. And their salaries will be 100 to 150,000 a year, so you can’t like and you’re living in San Francisco, so you’re not building it there. But I have a feeling that you guys look at this differently. Is that true?
Brent Beshore: Yeah, well I mean certainly the types of businesses, I mean, you know, we we have a rule we don’t buy from somebody who’s not already wealthy because if they didn’t get wealthy doing it, we’re not going to. Um, so they’re already um, they’re already doing well. I mean these are people who are the chairman of the country club, they’re they’re um in in the geographies they’re in, they’re probably the people that, you know, the Chamber of Commerce would point to and say they’re a really vibrant good local business, um or they’re a bigger business, national business that’s based in that geography. Um, and so, yeah, I mean the the the they’re getting wealthy from cash flow. Yeah, yeah, yeah, these things make money. I mean, you know, uh the we know we’re we’re typically um, I mean, if we’re getting involved now, the company is making more than $3 million a year uh of real, you know, real owner earnings, what it sticks to the owner. Um, so um, look, anybody and these are closely held, so typically the owner will be one to maybe three or four people uh at most. And so, you know, usually the the one, two, three people that are that are owning the company are doing very well. They’re taking a lot of risk, um, which maybe sometimes it’s hard for people to see and they built it over a long time, but I mean, yeah, they they’ve done well for themselves and um, they’re successful in, you know, separately and outside of the transaction itself.
The “First Thing” [16:37]
Shaan Puri: And so the the owner, let’s just walk through a typical one. So uh I’m uh you know, hypothetical owner of a business that manufactures wheelchairs. We’re based in Oklahoma and I’m the owner, I’m the sole owner and I I pull in, let’s call it $3 million a year owner earnings. Yep. And owner earnings would be different than sort of EBITDA in this case, right? So you’re Yeah, I would say EBITDA minus uh um uh operating interest, any uh sort of necessary capital expenditures to keep the business on current trajectory and a a normalized uh compensation structure for the owner if they’re in leadership of the company. So it’s like kind of if you hired somebody to run the company for you and you made all the necessary reinvestments, how much would be left over for at your discretion where you can either try to inject it back into the company and grow it further or buy a boat. So so fill in the blanks for me. So if I’m making 3 million a year, what’s a typical EBITDA then for that company if the owner’s pulling in 3 million on the types of companies you look at?
Brent Beshore: Yeah, I mean probably EBITDA would be three and a half to four, something like that, probably. Wait, wait, say it again. So that was on 3 million in in owner earnings would be 4 million in EBITDA. Roughly.
Brent Beshore: Yeah, roughly. I mean three three and a half to four. I mean it depends on the the the the type of company. I mean we looked at an aerospace company uh a couple years ago and they were doing seven in EBITDA and owner earnings was like three and a half or four. Why? So it depends on because of the investment. So he just all they had they just they needed a a large cash buffer. No, no, they they’re having to reinvest in equipment to just keep their market share and and sort of stay steady in place. It just, you know, um all that cash flow would be rolled back into uh buying new equipment, buying more inventory, you know, all the all the type of things that the cash would be sucked into. And how are they getting the money out of the business? I mean, uh are they is it are they typically LLCs or Yeah, typically. I mean, it’s a mixture. I mean, I would say probably 90 10, maybe 85 15 is uh LLCs. Um, but either way, I mean, if if they’re a C corp, you’ll typically see owners, you know, paying themselves a lot so to to avoid that double taxation. So they’re just paying themselves big old salaries and just having to pay 50% tax. Yeah, I mean, if you live in California. If you live in California. So let’s let’s keep going for a second. So let’s say you’re at uh three three and a half to 4 million EBITDA and when you guys go to buy these businesses, what type of multiple, of course it depends on industry and it’s very dependent. But what’s the range? Is it 1X, 2X, 3X, 4X? Is that is that the sweet spot of kind of the bulk of your deals? Yeah, I would say kind of three and a half to five and a half would kind of be the be a normal range. Um, I mean we maybe we’d go higher for a really high quality asset, but I would say that’s a pretty normal range in our segment, which is, you know, kind of our strike zone is three to $8 million of owner earnings. Um, so in that range, I mean on the upper end you can get into more traditional private equity territory and and um, you can see some some well, you used to see as of three weeks ago, this is again, I got to reorientate myself to the new reality, but um, um, yeah, I would say three and a half to five and a half times. And then there’s usually a component of that that’s held back, uh earned out or downside protected in some way. So we’re typically paying two to kind of two to three and a half times cash at close and then the rest kind of on on the upside depending on what happens. Gotcha. So you might have a, let’s say, $10 million price tag uh for the cash at close and then plus maybe 4 million, 3 million bucks uh that’s that’s earned out. So now you go to SBA and what you were saying is that you guys don’t do debt. You go you guys do no debt or you use less debt than a a typical private equity firm. Yeah, so so the SBA was on the first transaction I did 10 years ago with my own money that we have no we have no involvement with banks uh or the SBA or anything like that now. So you guys just do cash deals. You say, “Here’s 10 million bucks. Uh we’re done.” And why don’t you use debt? Yeah, well so, um debt’s one way to take a good company and make it a uh a fragile company. Um, you know, the the more debt you’re layering on and the um sort of the wider the variation of outcomes that you expect to happen, um, and obviously pandemic risk is something that was not on a lot of people’s radars, us included, uh until recently. Um, but it’s a, you know, it’s a good example of why we think that um not leveraging these companies, especially in the beginning when you’re starting to get to know them. I mean, until you own these companies, you just don’t know what you’re getting, really, until you get, you know, underneath the hood. And there’s always more risk there than you think there will be, right? So, um, you know, our our mentality has been go in with with all equity, no debt, um, try to keep them very, very uh robust uh on the balance sheet and make sure and we’re buying these with full balance sheets attached to them, right? So working capital is all included. So the net worth of the company will be um, you know, fairly robust going into the transaction. And then of course, as we over time as we build cash into these companies, um then we can decide what to do with it. Um, but working capital bucket is kind of like the you got to fill up the bucket first before the owners can get anything out, right? Because you got to keep the the the the machinery lubricated. And when you buy a company, what is the first three months, six months? Are you hands-on with that? Is it uh do you have you have a operating partner who does that? How do you guys make sure that you and you buy an asset, you don’t A, destabilize it and B, you actually start to grow it, which is I assume why you bought it in the first place. Yeah, so so our our philosophy, there’s a lot of uh private equity firms out there that have these like, you know, 30-day, 90-day, 120-day plans, right? Um, we don’t do that. Um, what we try to do is is take a humble attitude towards it and say, look, we we we know some things, we have some talents, but but we want to learn and and and uh come alongside them. They’re the experts, they’ve been doing it for a long time. Um, so there’s a team of 16 of us. So so it’s not certainly I don’t want to get the impression this is just me. Um, there’s people far talented, more talented than I am on staff. Um, and they’re um, we we have a dual hooking structure post close. So our financial team hooks into their financial team and creates feedback loops and then we have a um, what we call a portfolio partner. They’re kind of a board of directors in a box that um uh is overseeing kind of the executive leadership, um helping make very high-level decisions. Um, I mean, these are autonomous operating units. I mean, so there’s these are these are not we’re not injecting these people into the companies to run them, but they’re in touch with the leadership teams all the time, um doing, you know, a variety of different types of uh calls and meetings throughout the year. And how many companies are there? There’s nine. Um, that you guys own. Yeah. Got it. So that seems manageable. Yeah, I mean, it it it’s so for every kind of three to five companies we we acquire, we got to hire one high-level financial person and one portfolio partner. Um and that’s kind of their their grouping of companies that they’re kind of running. So we’re almost creating like a fractal if you want to think about it that way down into the organization so that it scales as it sort of linearly in that way. So Andrew from Tiny, uh Sean and I are friends with him and we I just shoot the shit with him every once in a while and he emailed me, he like tweeted this thing and he sent me the tweet of how he met a guy who had a cool furniture store and he goes, “Oh, this is neat. You need to put that on Shopify.” And okay, I’ll partner with you. Let’s do it. Now I own part of it. And he also did the same thing with like a local news outlet in Victoria where he just like seems like he’s spinning up stuff so fast. I’m like, Andrew, I don’t know how you track all this. This is crazy. Uh tracking nine is easier than tracking nine is hard, but it’s a little simpler because it’s appears from the outside as though he has got 40 different things. How does how does that compare do you think with with something like tiny? Uh and does does does keeping on top of all this, I mean, that seems really hard to focus on where to put your focus. Yeah, I I I mean, I I know Andrew a little bit. I I don’t know him super well. I mean, it seems like he’s been successful. Um, I think they’re getting involved in in in in for the most part, more internet-based, uh software-based type companies. Um, so it’s just a very different model. Um, uh, so I would say, um, I have no idea how they’re organized internally. I can tell you on our end, um, is it a lot of work? Is it difficult? Of course it is, right? Um, anything worthwhile is going to be hard. Um, you know, internally how we’ve created that structure though, it’s it it it it creates a very manageable um, focus group, right? So you can you can allow a small group of people to be highly focused on on certain outcomes as opposed to being all over the place. I mean, I if it was just me and a partner of mine like that we were trying to ham and egg this thing, like I’d go nuts. There’s no way, especially right now. I mean, with all the turmoil that’s happening, um, there’s just no way you can keep everything separate and, you know, watch legislation that’s coming out and watch legal and accounting and meet deadlines for audits and I mean, it’s it takes a full team and so, um, yeah, I mean, we’re obviously blessed to have that. Earlier you talked about the one of the things, you buy a company, I you you okay, so you said that there’s there your sweet spot is in between like it working out like it it working and it being professionalized, right? Yeah. Um, and I think that when I so uh I started the company that I have, uh I started it when I was 24. It’s it’s a good business now, but what I learned the hard way was that actually to make something more valuable, you need to take yourself out of the equation as opposed to like, you know, this Mark Zuckerberg thing where you’re just going to super Superman this thing into like existence. It’s actually far more valuable, even if that means you have a lower revenue number to have it where it’s like a machine where people can be uh where you have put people in place and it’s not just on the shoulders of one person. Sure. Can you and and I learned this from David Hauser. Sean, you know David Hauser? I don’t. Okay, this guy named David Hauser, he’s one of our little he’s we we’ve raised a little bit of money. He’s one of our investors. He started Grasshopper, which it was like a Yeah. You know Grasshopper? Okay, he started that. Okay, so it helps entrepreneurs, it gives small businesses a a a phone. So it’s like Google Voice on steroids. And he sold it for I think $300 million. Really successful and he wasn’t even the CEO. He started it and owned the company and hired a CEO to run it. And he taught me how to do that. And I think that’s fascinating. Can you talk but but that’s different than what of our a lot of our listeners probably think about. They think about if they’re going to start it, they got to be like running the show. Can you talk about where you’ve learned this process and and why and and I guess the companies that you’ve bought, how have they successfully navigated that to where the owner is no longer like the person? Yeah. Yeah, so I mean for for us, I mean, well one, I I knew my own limitations and I knew that there was no way that uh I could just brute force this thing on my own and I mean, uh I think always subscribe to the uh bring bring people that are far smarter and more driven around you. Um so that’s how we build the organization. Um I I hope in three to five years I’m completely useless and they just give me my ball of yarn and let me play with it. Um so, um but in in the organizations that we look at, um we we call this founder mode. So this is probably the biggest danger of of acquisitions is you buy a company that is that largely all of the goodwill is tied up in the relationships, expertise, drive of the founder. Um and there’s just no really way to transition those uh separate from maybe coming alongside them and and over a very long period of time, um making that transition happen. So for us, we try to select against that. Uh we want to see repeatable processes, we want to see a healthy layer of non-owner management. Um we want to be able to see that um we always call it, you know, hit by a bus risk. Um so if anybody in the organization can get hit by a bus and destroy the value of the business, um that’s just a no-go for us. But tell me what you’ve learned on these people. So how do I want to make my company like that? How have you got what what have who how have they done it best? Yeah, so I mean I think the the methodology that we’ve seen work the best is um take the things that either you aren’t good at or you don’t want to do and start giving them to other people and then over time as you sort of continue to offload and offload and offload, you just kind of move up until eventually there’s nothing much for you to really be working on. I mean if you have a lot of free time and you have a lot of flexibility, um we always talk about if you have the optionality to get involved or not to get involved. A lot of these owners, you being a good example of that, could probably add a lot of value if you chose to get involved, but you also know that the thing’s going to work out fine if you don’t get involved. Um and so that’s always ultimately the test. Now, um we also have a lot of owners that we talk to and they say, “Oh, I’m not needed in the office at all. I, you know, this thing runs itself and we say to them, “Oh, that’s great. When was the last time you took a vacation?” They’re like, “Oh, I think three years ago I went on a weekend getaway with my wife and uh yeah, you know, and you’re like, really? So there’s that balancing act of self-awareness as well. Is there any resources that you turn to or have turned to to learn this or that you can tell me and our audience to uh turn to in order to learn how to do this successfully? Gosh, I I don’t. Um it’s more just, you know, getting hit in the face over and over again. Um the hard knocks. Brent, where are you finding these companies? So are you is it a broker network? Are you are there websites you use? Is it inbound because you do a lot of content or you know, what is the explain how you find the companies that you end up looking into and potentially buying? Yeah. Yeah, so uh we’re fortunate now. Um we do a lot of content out there. Actually, podcasts is one of the things that that’s been helpful for us. Um so thank you guys for having me on. Um but uh um we have it’s all inbound at this point. So we’re not going outbound to anybody. We’re putting the website. Oh, there you go. I got your book. If you’re listening to the audio version, which you almost certainly are, uh I’m holding up the messy marketplace, which is Brent’s book. I bought this like, I don’t know, six months ago. I bought it right after we sold our business, so it wasn’t really applicable. I just kind of like, oh, what did I do wrong type of thing. But you did fine. Yeah, turns out just timing was good. You know, getting in before the whole world descended into chaos was a was a good idea, a good time to sell, but I didn’t know that. But you put out this book and um it seems like you do more content than than I would say the typical kind of buyer or private equity firm. Yeah, I mean I so so uh you know, I owe most of my career to just ripping off venture capital um is is in in reality. Um so you just look at how did all the, you know, Fred Wilsons, Brad Felds, uh Shusters, uh Andreson, all those guys, how did they break into the world? And it was basically by pulling back the curtain and um and helping educate people. Um and so I mean that’s what we’ve we’ve taken that that to heart and we’ve I mean started very early on. So we’ve been producing producing content, talking to people for probably seven or eight years now. Um it’s gone back a long time and so um, yeah, over time that compounds, right? In the beginning you’re just shouting into the darkness and no one cares and then over time, you know, you sort of get people’s attention. Um our goal is just to be the first stop uh for anybody who wants to sell their business. and um we also try to be helpful on the back end. So all of it’s inbound. We have a scout network, um which is common in Silicon Valley, uh but very uncommon in in private equity. Um so we have about 700 people now that uh that scout opportunities for us, um, which is fantastic. Um and we obviously pay them um when when we are able to consummate the transaction. And you have a capital camp, right? Yeah, yeah. so Patrick and I uh yeah, so we uh we were complaining one night uh about how all the events in finance were terrible and uh how it would be fun to get like a cross section of people together because there’s typically, you know, VC events, private equity events. There’s very few events that get sort of a broad cross section of people doing interesting things together. And so uh we complained about it enough. I I I I said to Patrick, I said, well why don’t we just do something about it? And so he and I partnered up and uh we hosted the first one last year. It was fantastic. Uh about 250 people from 11 countries, uh five continents came in and um that was great. Uh we had a we had a wonderful time. hosted in Columbia, Missouri, my backyard. um but it was, you know, I think I there was one other guy from Missouri there. So it was very uh not not a regional crowd if you if you know what I’m saying. Um and unfortunately this year we had to postpone it um due to the virus. So um we’re pushing it to September. Hopefully that uh we are able to flatten enough by then that uh we can uh we can have it hosted then. Give us some predictions about the virus and the the way the sort of what’s happening to businesses right now, you know, on one hand, uh you said your timing was was good in the sense that you raised your big fund before all this and now a bunch of businesses are going to need liquidity, they’re going to need um, you know, somebody who’s who’s a stable capital partner to to come in and buy them. Um, what are you guys seeing? What’s your prediction on on how this is going to play out? Well, for for you and for the economy, I would say. Yeah, well so so for uh well let me let me broader I think what what we’re predicting and of course no one has any idea, right? We’re I mean trying to do the best we can to triangulate information. Um we think it’s going to be a pretty long uh if you want to think about it, a good analogy I heard was uh is a blizzard, a winter, an ice Age, right? It’s kind of a the three stages probably. Um, you know, I think the blizzard is going to last for another at least six to eight weeks, um probably longer than that. Um and then I think we’re going through a period of uh it’s going to be hard to restart a lot of these businesses. So there’s uh in in theory it sounds, oh, there’s economic problems, it’s no big deal. You just kind of go into hibernation and then come back out of it and everything’s fine, right? Uh in practice, there’s a lot of start-stop problems. I mean, you guys have run businesses, you know, if you had to mothball uh everything and try to restart it, I mean, you’re you’re not going to be able to do it. Uh or at least it’s going to be very difficult to do it. Um and so um and so um my guess is there’s going to be a lot of pain and suffering. Um so in our portfolio, um you know, because we don’t use debt and we have good balance sheets and obviously we have a financial firm to back it up. Um, you know, we’re going to be fine. I mean a lot of the businesses we’re involved in have been doing better than we expected uh probably two weeks ago. Um with that said, you just have no idea where demand’s going to go and I mean we’re bracing and we have plans for, you know, depending on what level of pain and suffering um, you know, happens, what you know, what the plan is and you know, we’re going to try to get the things back up and running as fast as we possibly can. Um, you know, the government intervention that just came out uh is interesting and how it’s structured. So the Cares Act just got passed, I don’t know, 20, 30 minutes ago. Um and um, you know, it is uh it’s better than nothing. Uh it it’s going through the SBA and the SBA is um to be generous like the DMV of the finance world. And so um it’s not going to be an easy uh thing to get all that money deployed. Um also the the the SBA lenders that we’re talking to that are at these banks, and we’re not using the SBA, but obviously if it’s uh forgivable loans, then it’d be insane for us not to to participate in that. Um and they don’t even know what the rules are, right? And so they’re trying to get triangulated on on what things are. Um so I think there’s going to be a lot of confusion. I think it’s going to take a lot of time to get the the money into people’s hands. I’m not sure it’s going to actually stem the tide as much as they think it will on unemployment. And so I fear that unemployment could go to 20, 25, maybe even 30%, which is You think that’s realistic? Yeah. Yeah. Fucking A, man. That’s crazy. Yeah. To put that in perspective, to put that in perspective, the great uh the the the the Great Depression was what? 18 or 20? I think it it it touched high 20s. Um so so I mean it the peak and like I said, I mean, I look, I hope I’m wrong. Right, let’s just say for what it is. I mean, I I hope that that’s not that this is not a good environment for us actually. I mean, this is an interesting. We can talk about it as being a uh, you know, a firm that has a lot of cash right now. Um, I I don’t think this is a good environment for us at all. I would much prefer a 2008, which was much more shallow uh downturn recession. Um, this the violence of this is is basically rendering all information uh available um like a non-issue. You just can’t there’s nothing predictive about what’s happened in the past and what how it goes in the future. And demand curves, I mean, we don’t No one knows. No one knows what the demand curve looks like. But are you betting for a 20% or 30% unemployment rate? Well, I’m not betting on it. Uh that’s what I think’s going to happen. Um, but I I think you said you think that’s going to happen? I think I think we’ll probably touch 20%. Um I think we could touch 30%. Um Yeah, and I think we’ll see it in the next six weeks. Um will be will be when it really comes down. My guess is I I called jobs the the jobs number, the the unemployment number that came out, I had said uh previously, I thought it was going to be about 3.5 and it ended up being about 3.3, um which was wildly higher than what the sort of consensus was a million. And if look if you’re involved in small businesses and you said there was a million people uh filing for unemployment, I said that’s like a joke. Um of course it was going to be way higher than that. There’s no way it couldn’t be way higher than that. And I mean what we’re seeing is I mean I had I had a buddy this week who laid off um uh 4,000 of 5,000 employees this week. Had another friend who laid off uh 585 of 600. Um I mean and this just that’s just me. I mean what I know Were they in the hotel industry or what what was it just a general industry that? Yeah, food service is one, um and um uh construction was the other. Um so it’s just it’s it’s it’s a tough. I mean, it’s tough. As demand dries up, I mean you got to think about the supply chain all the way back. I mean people aren’t ordering stuff from factories, right? Because they’re demand’s dropping off on the other side. If the fact if the stores said, no, no, no, we want, you know, all of your inventory now, they’d say, we don’t have anything to sell you. Right. Right? Because everyone’s preparing for winter and so it yeah, the stop start problems are just going to be tremendous. Wait, Sean and Brent, you guys are both, I mean, we are all, I have no idea where people are, but we all are people who probably aren’t poor. Have you guys cut your spending? Oh yeah, for sure. I uh I did the the first thing I did was I cut the I cut my exposure to the stock market, which I think is going to uh drop like a rock now. Um and so that was the first that was the first thing I did because that’s more than spending is just wealth destruction. And so I wanted to avoid wealth destruction first. But did you cut your your monthly subscriptions? I didn’t I didn’t go through that yet. Uh but we have sort of um like me and my wife now before we do something, uh we’re like, yeah, do we really need to? And so we’re, you know, it’s starting to creep in, but we haven’t gone and audited and said, hey, necessary, unnecessary, necessary, unnecessary. But yeah, you know, probably should and probably will. Even though like I have plenty of money to last for a very long time, I’m like, I don’t I I’m going to buy the generic brand of this food. We we’re still spending on food, but we I mean, if you look at our our bills in the past, it’s been a lot around travel and uh uh yeah, we’re not doing that. I mean, uh we did we did spring, by the way, the best investment I’ve ever made. I got three girls under six and uh we just bought a bounce house and uh have in the backyard and by the way, that’s the best it’s the best $300 I’ve ever spent in my life. There’s a business. There’s a business you should buy. That sounds not sexy, but interesting enough. Exactly. Bounce houses for viruses. Yeah. Okay, my last question for Brent is this. You’re um you’re 25, 30, 35 and uh currently like let’s just imagine you are. I have no idea how old you are. But let’s say you’re young enough to like start get Okay, well let’s say you’re uh you’re you’re starting your career, you’re in the middle early part of your career now, um knowing what you know about what makes valuable companies and what builds wealth, what are some businesses that you’d want to start right now and what would you optimize for and what metrics would you try to optimize for? And how? Yeah, I mean I I think it depends on what you’re what you’re trying to optimize for. If you’re just trying to build I’m asking you. Well, I’m asking you. For for me personally, um, I mean, I I I I I really find value in in balancing home life and work, right? So family’s super important to me. So, um, my answer would probably be a little bit different for me and I want to live not in a big city. And so That’s okay. I want to hear what you would do. Yeah, yeah, yeah. So if I was starting over today, um, I would probably uh start something in the construction space or home services space, maybe office services. I want to get into something that’s that’s that’s um, you know, I I I like uh competing in areas where there’s not a natural selection of people into that, right? So you don’t want to be in the winery business because everyone in Silicon Valley that exits uh a business goes and buys a winery, right? Um and pumps a bunch of money into it. Um like I don’t I don’t want to be in the the film business because everybody who, you know, every son of a billionaire, you know, makes movies. Um, you know, owning restaurants is really difficult. I mean separate from all the stuff we’re going through now, um because everyone, you know, that makes any money thinks it’d be easy and wants to own their own restaurant. So I like to things that sort of have a natural um selection bias against them. Like nobody drives by somebody building a swimming pool in Arizona in the summer and says, you know what? I really want to quit my job in the air conditioning and go dig a hole in the ground, right? Um so we want to get you know, get involved in things like that. I would um try to take something probably that that is small and partner with them that they already have the infrastructure in place, the the the sort of the the technical side and the systems there. and then I would really try to spend some time um, you know, how can we use, you know, latest technology to uh make us more efficient, try to build something that’s scalable sort of beyond a geography, um and get a model down, a billing model, a sales model uh down that we thought was replicable, um and that really had some sort of mode around it and then I would try to um scale it over time. Um and I think there’s a lot of that. Hey, what’s specifically? Yeah, anything specifically? I I I think it would depend on largely on on what I could find uh in the geography. I mean here here in Columbia, I mean there’s um there’s a fantastic HVAC service company that’s uh still fairly small, but they’ve got great systems. They actually developed their own software. Be something like that that I’d want to partner with and say, okay, look, you know, I want to get my hands dirty, I want to get involved in it. I mean, I’m a I’m not an investor by heart, like by I mean, I’m an entrepreneur. That’s what I love to do and that’s how we think about our business is is being operators and entrepreneurs. And so, um, I I wouldn’t necessarily get involved in finance. I mean, finance to me is a mechanism that allows and enables entrepreneurship and and, you know, running real companies. It’s not trading paper back and forth. So I would probably uh get far more involved in in in sort of non-tech entrepreneurship, which I know you guys are in Silicon Valley and this is going to fall on deaf ears. No, I I I I like I like what you’re saying. But you you so you said Hvac, you said pools. Yeah, pools, lawn service. Um, I think um, uh, you know, I like lawn service. Yeah, like lawn like lawn and garden care type stuff. I mean, have you ever tried to get somebody to call you back? It’s Yeah, you want to hear something cool? We had um, so Brian, you know who Brian Scudamore is? Scudamore? Uh 1800 got junk. Oh yeah, yeah, yeah. Yeah, yeah. Okay, so the guy the guy who owns it, his name is Brian. He’s Canadian, he’s friends with me and Sean. Um I shoot the shit with him every once in a while. It’s like a what is that Sean? Like a $500 million year company. He owns all of it. And he um we either me or someone of us asked him where opportunity is and he goes, man, if I had to do the same thing, I would do 1800 got junk, but I would do it for uh lawn care or for irrigation. Yep. Yep. That’s that type of stuff I’m talking about. Yeah, I mean there’s there’s there’s all these like strange I mean niches that you can get into. What I would do is probably take my time and go and talk to a lot of people who are already in business and say, what is your biggest problem? Like who’s the supplier that you’re most annoyed with? Um, you know, what’s the customer that you have that’s just killing it, that type of thing. Um and then I’d probably go try to snake my way into one of those uh one of those businesses and and then just it’s really just about getting a foothold, right? I mean that’s what you need is you need a foothold and then you can start building on it from there. Um but yeah, I mean the the problem is if you got a if you got a boat that you’re trying to row that’s rickety and and it may look pretty on the outside, but it’s just not going to go anywhere. It doesn’t matter how hard you row it. And I think that’s in, you know, early in my career when I was involved in, you know, more the agency business, that’s how I felt. It felt like I mean I could just row that thing as hard as I could and I maybe get an inch further. Um and that’s why I just want to get out of businesses that are like that. Right. All right. Well, we should wrap it up. Uh Brent, thanks for coming, man. Um if if you’re listening to this and you want to get a hold of you, what’s the best way for people to follow you, you know, keep keep tabs, become a scout, whatever you want. Yeah, yeah, yeah. So so permanent equity.com is the is the website. Um and I’m on Twitter at Brent Beshore, uh on LinkedIn. I mean, just hit me wherever. Um try to be very available and if I can be helpful, let us know. Um yeah, it’s been wonderful to have you guys on. Man, I I mean, I hope you get I hope you feel better. That that uh that doesn’t sound like any fun. I’m now now you’re terrifying me. So, I’m Well, no, look, I I I my point was the opposite was to not terrify. Look, do I seem sick to you? I mean, I I I I I’m sleeping in, so I got I didn’t get out of bed. I I didn’t wake up until about 9:30 or 10:00 a.m. this morning because I I was like, I’m just going to sleep as much as possible. I’m drinking a lot of water. Uh I would not exercise today. That’s how bad I feel. I would not go to work today, but I definitely would not even consider going to a a hospital. I and normally I wouldn’t even have gone to a doctor. Oh. All right. Well, so this is how I’m trying to paint this as as in a positive way as as best as I can. All right. Well, Sean, don’t don’t you get sick. All right? You can’t get it through Zoom, so we’re good. All right guys. Hey, take it easy. Really appreciate it. Thanks. Take care. Bye.